Coke, Pepsico and Nestle to increase flavored water options

At a Kroger store in Atlanta’s Ansley Park neighborhood, a wall of water stretches more than 20 feet. Shelves hold bottled brands ranging from Dasani to Aquafina to Zephyrhills.

All of it is plain old water.

But off to the side, in a smidgen of space, there’s room for a growing brand called Propel, in varieties tinged with tastes of black cherry, grape or peach.

When it comes to water, Propel is a small brand, but it has done something big _ it has shown what happens when a market gets a little flavor.

The country’s three biggest sellers of bottled water _ Nestle, Pepsico and Coca-Cola _ are all planning to offer new flavored bottled waters early next year in a bid to capture part of a market currently led by Propel Fitness Water.

Pepsico is even preparing to compete with itself, given that its flavored Aquafina waters will rival those of Propel, sold by Pepsi’s Gatorade unit.

The coming splash of flavored products is a sign of just how fast the bottled water market is changing, with more tailored product lines targeting solid but narrow niches.

“We will go where the consumers are,” said Rick Zuroweste, group director for Coca-Cola’s Dasani.

Bottled water ranks as the fastest-growing major segment of the U.S. beverage business, with sales volume that climbed 20 percent in the first nine months of the year, according to Beverage Digest.

Growth has been even stronger in a subset of the business that includes flavored water.

Analyst Bill Pecoriello of Morgan Stanley estimates that “enhanced water,” led by flavored Propel, makes up 4.3 percent of bottled water volume in U.S. supermarkets. In dollar terms, it’s an even bigger business, at 10.4 percent of sales.

“Enhanced water has been an attractive, fast-growing category,” Pecoriello said.

Enhanced water also offers plenty of room to branch out.

“The water category has gotten very big, so it makes sense to start segmenting the category to maintain growth and spur new consumer interest,” said John Sicher, editor and publisher of Beverage Digest.

At the moment, Propel owns the lead in enhanced water. Its overall share of the bottled water business is 2.8 percent, but sales grew an astounding 48.7 percent through the first nine months of the year, according to Beverage Digest.

Results like those have put a bit of a bull’s-eye on the brand.

“I can completely understand why others want to emulate us,” said Marie Devlin, vice president of marketing for Gatorade and Propel.

What’s new is that Coke, Pepsi and Nestle are hoping to take their flavored waters to a bigger market, broader than the fitness freaks targeted by Propel.

Research shows there’s a sizable audience of everyday drinkers who want a little variety with their water, all three companies found.

“Not everyone wants just plain water,” said Cie Nicholson, vice president of noncarbonated beverages for Pepsi-Cola North America. “Some people think water is boring.”

And sales might grow just by making it easier to find flavored water.

In many stores, flavored waters are largely limited to sparkling varieties like LaCroix and Clearly Canadian. These brands often aren’t found in the most coveted locations. At the Kroger in Ansley Park, flavored waters don’t share space alongside the biggest-selling brands.

Coke, Nestle and Pepsi are aiming for the big water aisle. They’re also planning to sell their flavored waters at premium prices, hoping to make them more profitable than their plain cousins.

A six-pack of 16.9-ounce bottles of Propel, for example, was selling for $4.49 at Kroger.

Success, however, is far from assured.

Two years ago, the industry had high hopes for vitamin-enhanced waters like Coke’s Dasani NutriWater and Pepsi’s Aquafina Essentials. Both flopped badly and were taken off the market.

Many consumers haven’t been sold on flavored waters, either. Roger Gibson, general manager of an LA Fitness branch in Midtown Atlanta, sees club members toting bottles of Propel. But he’s not among them.

“Personally, I just prefer plain water,” he said.

Nonetheless, the nation’s big beverage sellers see a market.

With that in mind, fruity-flavored waters might be one of the hot spots of 2005.